The step-up in basis allows a person that inherits an asset to use the fair market value of the asset at the time of inheritance as the cost basis for taxes when it comes time to sell. In short, it reduces the capital gains tax on inherited assets. This is very beneficial for assets that have greatly appreciated in value before being passed to heirs. To help your understanding, keep in mind that the larger the difference between the “cost basis” and the “selling price,” the more someone pays in taxes.